Ex-Somerset school board member faces new security fraud charges

Friday

Feb 7, 2014 at 3:29 PMFeb 8, 2014 at 8:32 PM

A 64-year-old town resident and disbarred lawyer, who was ordered to pay back some 400 investors $20 million in 1997, faces new allegations of security fraud, according to Secretary of State William F. Galvin.

Michael Holtzman Herald News Staff Reporter @MDHoltzman

SOMERSET — A 64-year-old town resident and disbarred lawyer, who was ordered to pay back about 400 investors $20 million in 1997, was arrested Friday and faces up to 20 years in federal prison on new allegations of mail and wire fraud, according to the U.S. Attorney's Office.

John Silvia Jr. of 305 Foley Ave. was released on $50,000 unsecured bond with restricted travel within Massachusetts and other release provisions after an initial appearance in U.S. District Court, Boston, said Christina Sterling, spokeswoman for the U.S. Attorney's Office prosecuting the case.

Silvia was arrested at his home about 6 a.m. Friday by town police on an arrest warrant, booked at local headquarters and turned over to the FBI to face the U.S. Attorney's Office charges, Somerset Sgt. Todd Costa said.

The charges were a result of a Massachusetts Securities Division complaint brought by the office of Secretary of State William F. Galvin alleging Silvia failed to invest $300,000 in a real estate and "performance bond" scheme, funds that two people — a friend, now deceased, and a Boston nurse, helping treat a relative of Silvia's — gave him.

He represented the investments as "risk-free" and promised a return of principal and substantial interest with approximately 90 days, Sterling said.

Instead, Silvia, disbarred a decade ago after practicing law in Fall River, and a member of the Somerset School Committee for nine years until 1986, spent the money himself, including cash gifts to family, life insurance premium payments and for Red Sox season tickets, Galvin's office reported.

"This is particularly egregious because of using it for personal expenses" while allegedly defrauding people, Galvin said in a phone interview. He contrasted the alleged scam with taking money for a bad or risky investment.

"It's unacceptable," Galvin said, stating he remembered his office bringing civil charges against Silvia in 1995 for selling unregistered securities, a case that continued for more than a decade as investors tried to recoup millions in lost funds. It was Galvin's first year as secretary of state.

Back then, Silvia only faced administrative charges to repay the eight-figure sum for selling unregistered securities without being registered to sell them. He later declared bankruptcy.

By the end of 2004, after Silvia lost his appeal of the state charges, creditors had recouped only 28 percent of their original investments in Environmental Recovery Systems. Silvia represented the plastics recycling company at 1400 Brayton Point Road, which closed in November, 1996, after just a few years of operation, according to Herald News reports.

Now he faces federal fraud charges that carry up to 20 years in jail, three years of supervised release and a fine of $250,000 or twice the gain to the defendant and loss to the victims, said Sterling. They issued criminal charges based upon the civil complaint.

"We found that this is the most effective deterrent," Galvin said. "This is not unique."

Their charges specified that through Richard Consulting LLC, solely owned by Silvia, he became a consultant in Advance Space Monitor Inc. at 277 Brightman St., Fall River, in 2009.

As partial payment for his consulting, he received the right to purchase 500,000 shares in this company. From February 2009 to July 2011, Silvia, not registered to sell securities, induced his personal friend to make eight investments in ASM totaling $240,000, the complaint says.

It says he used part of the money to buy ASM shares, the rest for personal expenses and a $15,000 commission, and after the investor died in 2011, neither his widow nor his estate received any shares or repayment.

The Secretary of State's Office reported that ASM was dissolved in June 2013, a decade after the company was formed and after it stopped filing required company reports with the state in 2010, Galvin spokesman Brian McNiff said.

In the complaint involving the nurse, Silvia produced a real estate venture saying it would return 20 percent interest by May 15, 2013. "The investor wired $60,000 to Richardson Consulting LLC, but Silvia failed to invest the money," Galvin's office reported.

"It doesn't mean there weren't other people in other states," McNiff emphasized.

For instance, he said Silvia gave an affidavit to their Enforcement Section saying Richardson Consulting assigned interest in ASM shares totaling $127,500 to three other investors in Rhode Island and New Hampshire. "He is also believed to have sold such unregistered securities to resident of many other states, including South Carolina and New Jersey," Galvin's office reported.

Among his personal information gleaned from archives and town records, John and his wife, Susan, own an 11-room home at 305 Foley Ave. that measures 3,000 square feet, has 4½ bathrooms and three fireplaces and was built in 1972. The last recorded sale was Nov. 8, 1978, for $731,000, and assessor's records value it at $412,600.

Silvia graduated Somerset High School in 1967 with high honors, passed the Massachusetts bar in 1975 and federal bar in 1976 and was actively involved in numerous town affairs, including teaching at Somerset High School.

At Friday's hearing before U.S. District Court Chief Magistrate Judge Leo T. Sorokin, a probable cause hearing on the wire and mail felony charges was scheduled for Feb. 18.

He was represented in court by a federal defender, attorney Behzad Mirhashem.